HSBC to put £2bn into collapsed lender after 11th-hour deal

HSBC has pledged to inject £2bn into Silicon Valley Bank UK after it snapped up the collapsed lender for £1, averting a crisis that threatened chaos across Britain’s tech sector.

The FTSE 100 bank told investors on Monday that it would commit cash to ensure that business-as-usual continued at the lender after it was seized by the Bank of England over the weekend.

In a call, Noel Quinn, chief executive of HSBC, and Ian Stuart, head of its UK arm, indicated that there would be no major changes to how SVB UK was run following the acquisition.

It came after Prime Minister Rishi Sunak cleared the way for HSBC to strike a last-minute deal for the collapsed lender after handing it an exemption from certain ring fencing rules.

The Treasury said it would waive restrictions on the types of customers that could be taken on by its UK retail bank under the so-called ringfencing regime.

Ring fencing requires banks to separate their retail banking services from their investment and international banking activities and was introduced as a response to the financial crisis.

Andrew Griffith, the City minister, said in a letter to the chairman of the Treasury select committee: “The Government is using its powers under the Banking Act to provide HSBC with an exemption to certain ring-fencing requirements.”

The concession was thrashed out in overnight talks between the Treasury and HSBC, with the deal announced at 7am before markets opened.

The failure of the lender threatened thousands of British tech companies and investors who rely on the start-up-focused SVB UK as their bank of choice.

Mr Hunt and Treasury officials had been holding crunch talks with the industry over the weekend and seeking to find a buyer, with HSBC, Barclays, Bank of London and Oaknorth among the potential bidders. Sources suggested HSBC was seen as the most stable and secure candidate. Putting the bank into insolvency without a buyer meant start-ups were threatened with having their deposits frozen.

‘The Government is providing HSBC with an exemption to certain ring-fencing requirements’

The chaos of this Government is such that sadly, all too often, it is easy to despair at our political leaders. The drama that engulfed Westminster and led to the resignation of the chancellor and prime minister within just a few days last autumn was a new low for a Conservative Party severely tainted by Partygate.

But occasionally the system works precisely as it should and you have to take your hat off to those involved. The bailout of the UK arm of stricken West Coast lender Silicon Valley Bank is one such instance – a sale of the business to HSBC assembled with lightning speed by Rishi Sunak, the Treasury, the Bank of England and the bank’s senior bosses. Deposits are protected; the technology sector and the tens of thousands that it employs avoid disaster; it restores some – if not all – confidence in the banking system; and as Jeremy Hunt was quick to point out, not a single penny of taxpayer money was spent.

To pull off something that complex in the space of a weekend is hugely impressive and a reminder that Britain’s most important national institutions still possess the proficiency to rise to the occasion when needed most.

Yet questions remain. One of those that is in danger of being lost amid the frenetic pace of events is why HSBC stepped in to save the day.

Noel Quinn, its chief executive, went some way to answering that question with a short statement about how the deal beefs up its commercial banking operations particularly among “innovative and fast-growing firms” in the technology and life-science industries. There’s no arguing with that logic. With 3,300 UK clients, including start-ups, venture-backed companies and funds, you can understand why HSBC pounced. It allows the bank to instantly tap into a formidable roster of blue-chip clients but also the vast network underpinning a highly lucrative entrepreneurial corner of the economy. Indeed, if just a handful of these fledgling start-ups prove to be among the next crop of big British businesses then it could turn out to be the takeover of a lifetime given that the token sum of just £1 changed hands.

But a cynic might ask whether that is the whole story. As ever these days, it is impossible not to spot the shadow of China looming over Britain’s largest bank when it comes to matters of strategic importance such is the extent to which HSBC has doubled down on the region in recent years. It is possible, of course, that ministers were nervous about reports of Middle Eastern buyers circling SVB’S British unit, and HSBC

‘It could turn out to be the takeover of a lifetime given that the token sum of just £1 changed hands’ ‘It may be that HSBC was the only big UK bank willing to step in to save SVB, or perhaps it is the only one able to’

was strong-armed into providing a more reliable homegrown solution.

There is obviously a reason why it was chosen from a process described as highly competitive. It may be that it was the only big UK bank willing to step in, or perhaps it is the only one able to, such is the industry’s retrenchment in the wake of the financial crash.

But equally it is not a stretch to think that HSBC spotted an opportunity to repair some of the huge damage that has been done to its reputation by cosying up to Beijing at the worst possible time. The bank’s unabashed big “pivot to Asia”, as it innocuously describes it, has come just as the Chinese Communist Party turns increasingly hostile towards the West.

And what better way to suck up to the UK Government than spearheading a rescue deal that means the state doesn’t have to intervene to protect thousands of depositors in an industry that it is desperate to court. It was only very recently that ministers unveiled a 10-point plan to boost growth by turning this country into a science and tech superpower. The timing of SVB’S troubles was delicate – with the Budget just days away, an under-fire Treasury could ill afford such a PR disaster on its hands as Hunt looks to calm some of the concern over his planned tax raids. So the goodwill is undeniable and having done ministers a favour by riding to the rescue it is not impossible to imagine that HSBC could seek to use that as leverage in the future if the situation in China becomes more difficult.

The logic would go something like this: in return for providing stability to the banking system and propping up scores of fast-growing start-ups, HSBC is entitled to expect, if not request explicitly, more tolerance from the Cabinet over its predicament in China.

At the very least, the bank would probably be within its rights to ask that the Treasury doesn’t go out of its way to criticise HSBC publicly, or put additional barriers in the way of doing business, if and when a new Cold War between East and West ratchets up.

Quinn may also have an eye on a bitter row with its largest shareholder, the Chinese insurance giant Ping An, which has launched a campaign for HSBC to be broken up. Though it has so far resisted the calls, it may be something that the board has to look at and by bulking up the UK arm, it makes it easier for HSBC to pull the trigger if the bank changes its mind.

HSBC may have finally done something for Britain rather than China but it is naive to think the bank won’t expect something in return.